The Accidental President

Latin Trade, August, 1998 by Ken Warn

ASUNCION--PARAGUAY'S PRESIDENT-ELECT Raul Cubas Grau is expected to initiate reforms aimed at reviving economic growth, which for 15 years has struggled to keep pace with the rising population.

"It won't be easy," say's a foreign banker in Asuncion. "Government involvement in the economy is overwhelming, so a lot of people want to maintain the status quo."

However, Cubas, a softspoken businessman who was briefly economy minister in 1996, has a reputation as a technocrat with little in common with the traditionalist, state-oriented wing of the party.

One of his first tasks after taking office in August will be to find savings to trim the fiscal deficit, which has risen to 1.5% of GDP amid the creeping paralysis of the outgoing government of Juan Carlos Wasmosy.

Sources close to Cubas say he may approach the International Monetary Fund for a "shadow" program to monitor the economy. However, sweeping reform of the state sector, such as large-scale privatization of the telephone, electricity and cement businesses looks unlikely.

But Cubas could go for more mixed solutions, such as allowing private capital into state telecoms company Antelco, or opening up the sector to competition. Paraguay's creaking telecoms infrastructure, and high levels of unmet demand for telephones, are widely recognised as a drag on development.

He may also seek to strengthen supervision of the banking sector and rationalize the chaotic, loss-making state banks. Loss of confidence in both public and private local banks due to repeated liquidity crises-and fraud-has been a gift to foreign groups, led by U.S.-based Citicorp. In the first quarter this year, foreign banks mopped up an estimated 70% of new individual and corporate lending business.

Cubas also urgently needs to encourage fresh foreign investment in the country's nascent industries. The smuggling and copyright piracy business centered in once-booming frontier town Ciudad del Este is gradually being smothered by pressure from the United States and neighbouring Argentina and Brazil.

Unlike his predecessor. Cubas will not have to face an opposition-controlled Congress. However, he will have to deal with factions in his own Colorado party. A role must be found for former General Lino Oviedo, the party's original presidential candidate, whose populist campaigning has given him a wide following.

He may also come into conflict with Luis Maria Argana, his bardline vicepresident. Argana was head of the Supreme Court in the final years of the dictatorship of General Alfredo Stroessner, overthrown in 1989. Argana will take some persuading to back more economic opening.